Food inflation declines in January

Improved food supply and reduced oil prices slightly helped the food inflation to ease down in January. Upto Jan 25, the prices of 13 items registered an increase, 10 food items including vegetables have come down while average prices of the 30 items remained stable, the data of the Federal Bureau of Statistic (FBS) said.

The market experts and analysts believed that the food inflation would further come down in February 2007, as the government is trying to further reduce the food prices through its import policies. They said the government officials are not properly checking the food prices in the markets and this process needs further changes to make the price checking system more effective in the country.

“The Sensitive Price Index (SPI) inflation has finally slowed down, as reduction in fuel prices and improvement in supply of some vegetables has reduced pressure on prices,” said analyst at Invest Capital and Securities, a local brokerage house. “SPI with consumer price index (CPI) food come to positive 0.92 as food dominates both indices.” The problem with controlling the inflation for first half 2006-07 was the unexpected rise in food prices, and the decline in SPI statistics will be followed by lower CPI food inflation, the analyst said.

However, a banker said SBP has made it markedly clear that inflation may remain above the 6.50 percent target solely on account of burgeoning food inflation and may dilute the effects of monetary tightening. SBP projects inflation to remain within the 6.70-7.50 percent band. The central bank remains vigilant of the international commodity price pressures that may aggravate domestic inflation.

The government also reduced the domestic oil prices in response of the international decline, the banker said. He said: “The move will go a long way in lowering the inflation numbers for January and is likely to curtail the headline CPI within the 8.50 percent mark.”

Though it is the food inflation that is more like a black horse in the racing CPI, which is rendering the decline in core inflation as insufficient. The bankers said: “It is of utmost importance to curb food inflation as it fuels inflationary expectations in the economy dampening the effect of monetary tightening. Increased government borrowings and resulting rise in reserve money can re-ignite inflationary pressures, extending the path of achieving stable inflation and leading SBP to keep interest rates high for a longer duration.”

The analyst said PIB yields have already started to react to the expected decline in inflation, as indicated by the volatility in the bond market. The yields are heading south as investors are upbeat about the economy and expect rates to decline as the economy seems to have bid farewell to the over-heated phase. Although interest rates are majorly related to core inflation, yet CPI gives a fair idea about the overall inflation expectations in the economy.

During the week, the prices of tomatoes, onions, potatoes, garlic, sugar, jaggery, bananas, LPG (11kg cylinder), milk fresh, vegetable ghee loose have declined, while the prices of chicken (farm), red chillies, vegetable Ghee (tin), moong pulse washed, mustard oil, cooking oil (tin), gram pulse washed, masoor pulse washed, mutton, firewood, wheat, mash pulse washed, egg hen (farm) have gone up.

Source: dailytimes.com.pk